There are many doubts raised on the investment thesis of Sharda Cropchem Ltd. However, a deeper analysis of the company will only make one more comfortable about the company. We, at ProsperoTree have tried to address the apprehensions and concerns of investors as below:

A) High Intangible Assets: SCL has total fixed assets of Rs. 198 crores. Out of this, Rs. 196 crores worth fixed assets are intangible. SCL gets its requirements manufactured from vendors in China and India and therefore it does not require its own manufacturing units. SCL has been investing heavily into the registration of products and already has 1,200 registrations across 70 countries. So far, the company has spent nearly Rs. 383 crores in acquiring registrations and has filed another 500 applications for registrations in various countries. As the registration process is capital intensive and its useful life is easily more than 10 years, most agrochemical companies capitalize these costs and amortize them over 5 to 15 years. For example, UPL has intangible assets worth Rs. 2,174 crores and amortizes it over 15 years. However, Sharda Cropchem has a very conservative accounting practice of amortizing its registration over 5 years. Out of the total Rs. 196 crores of intangibles, Rs. 61 crores are related to the registrations whose approvals have already been received and Rs. 135 crores of intangibles are related to 500 registrations that have been filed whose approvals are awaited. In a nutshell, SCL's accounting practices, instead of raising doubts, are instilling confidence.

B) Valuation Discount or Premium to UPL? Though a lot of critics are arguing for lower valuation multiple to SCL than its peers, we differ here. We think SCL should command a much higher valuation multiple than a competitor like UPL due to following reasons:

• Strong business moat in form of large number of registrations – A point to note is that companies like UPL have done sizeable number of acquisitions for increasing its registrations basket indicating that SCL is not inferior in these parameters.
   
• Asset light business model – Sourcing quality products is not a very big concern as the vendors from China and India will not be able to focus on large basket of product registrations due to its expensive nature and time consuming process.
   
• Conservative accounting practices – Amortization policy of 5 years for SCL instead of 15 years in UPL understates the profits and return ratios of SCL.
   
• High cash generation due to zero debt – UPL has a debt of Rs. 2860 crores while SCL is a debt free company.
   

C) No dilution happening; IPO funds not coming to the company: Sharda Cropchem IPO is unique in the sense that it is not tapping the stock market for raising funds for itself. However the IPO is mainly to provide exit to Henderson Equity Partners who hold 16% shares in the company. To comply with the 25% minimum public shareholding, Sharda Cropchem promoters have to offer other 9% shares to public. Some investors who are not satisfied with this reply further ask, “Even if there is value in Sharda Cropchem, why Henderson and promoters are selling their stake at such cheap valuations?” We may never come to know the underlying reasons but we are happy to ignore this argument and take a plunge into the story based on the fundamental facts that suggests good times for the company.
 

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